Does diversity matter?

Thursday 14th November 2019Justin Cleveland

The amount of women on ASX 200 boards has decreased. Is that a bad thing? Is there actually a demonstrable benefit to having diversity in your organisation?

The Australian Institute of Company Directors (AICD) says that the percentage of women on ASX 200 boards has dipped slightly, from 29.7 per cent in July 2019 to 29.5 per cent in September. They published their findings in the most recent Gender Diversity Quarterly Report.

It’s a disappointing result for anyone who wants to see gender parity on boards, however it brings up an interesting question: does the gender makeup of a board actually make a difference to the organisation?

Turns out that a company’s performance can, in fact, be directly linked to the diversity of its board. And, in some cases, gender diversity was a major driver of an organisation’s performance.

Past research has shown that there’s a general correlation between the diversity of an organisation — at both the board and executive level — and the general outcomes of the business. Calvert Research and Management, an affiliate of Eaton Vance, stripped away the rhetoric and wanted to understand if diversity has an actual, demonstrable impact.

ESG quantitative research analyst Yijia Chen conducted a three-year survey, tracking and testing diversity factors including the makeup of boards as well as the number of women in leadership and executive positions in the United States. She published her findings in a paper titled, "Evaluating the financial materiality of gender diversity factors".

“The research showed that gender diversity can have a significant impact on equity returns.”

The research found that gender-diversity factors show strong efficacy in equity returns in equity returns for both US and international markets.

For US large-cap companies, the TruValue circumstantial score related to gender and inclusiveness was the major driver of superior equity performance. Female representation in executive leadership roles is as important as representation on the board.

For US small-cap and non-US markets, gender diversity on boards was the driving performance factor.

There are myriad factors that can determine why an organisation is successful, but Chen says that her findings were fairly clear. “The research showed that gender diversity can have a significant impact on equity returns.”

“The circumstantial score related to gender and inclusiveness news/issues is one of the major drivers of equity performance for U.S. large-cap companies, while board-level gender diversity helped drive results for U.S. small-cap companies and non-U.S. markets,” notes Ms Chen.

Australian board diversity falling

The AICD found that not only has gender diversity fallen, but the percentage of women being named to boards has also fallen as well - down from 45 per cent in 2018 to 31.7 per cent in 2019.

There are qualified women available for board roles, says AICD CEO Angus Armour, and more women are serving in high profile positions than ever before.

“Boards struggling with gender diversity must challenge themselves and make commitments to do better”, said Armour. “They should reflect on whether their search processes are effective and competitive enough to access the large talent pool of female directors in Australia, including whether their recruitment firms are helping them to eliminate any bias and to identify a diverse pool of candidates.”

There were seven boards listed on the ASX 200 with male-only boards, something Nicola Wakefield-Evans of The 30% Club says is unacceptable. “Just 16.6 per cent of new directors appointed to [boards that had an IPO in 2018] were women, clearly Australia has a long way to go.”